Updated August 22, 2025 at 4:31 PM CDT
TORONTO — Canada is dropping many of its retaliatory tariffs to match U.S. tariff exemptions for goods covered under the United States-Mexico-Canada trade pact, Prime Minister Mark Carney announced Friday.
Carney said Canada will include the carve-out that the U.S. has on Canadian goods under the 2020 free trade deal that shields the vast majority of goods from the punishing duties, easing Canada's previous stance on holding the line on punitive tariffs until U.S. President Donald Trump relents more on those imposed by the U.S.
Some Canadian politicians and union leaders characterized Carney's move as capitulation, but the prime minister accentuated what he considered Canada's favorable position so far and said that the exemptions would jump-start further trade talks with Washington.
"Canada currently has the best trade deal with the United States. And while it's different from what we had before, it's still better than that of any other country," Carney said.
Carney and Trump spoke on the phone Thursday, and Carney met with his Cabinet on Friday before making the announcement.
"We had a very good call," Trump said Friday in the Oval Office. "We are working on something. We want to be very good to Canada. I like Carney a lot. I think he's a very good person." He also said: "I am fighting for the United States, and Canada and Mexico have taken a lot of our business over the years."
Carney said Trump told him that lifting the tariffs would reset trade negotiations. The United States-Mexico-Canada trade pact, or USMCA, is up for review in 2026, and Carney called the pact a unique advantage for Canada at a time when it is clear that the U.S. is charging for access to its market.
Carney said the commitment of the U.S. to the core of USMCA means that over 85% of Canada-U.S. trade continues to be free of tariffs. He said the U.S. average tariff rate on Canadian goods is 5.6% and remains the lowest among all its trading partners.
Canadian and Mexican companies can claim preferential treatment under the USMCA.
Canada and China are the only countries that have retaliated against Trump in his trade war. Canada imposed 25% tariffs on a long list of American goods in March, including oranges, alcohol, clothing and shoes, motorcycles and cosmetics.
Former Prime Minister Justin Trudeau initially put on retaliatory tariffs in response to U.S. tariffs, but before the U.S. tariffs were applied the Trump administration exempted goods covered by the free trade deal.
Most imports from Canada and Mexico are still protected by the USMCA, but U.S. Commerce Secretary Howard Lutnick has said, "I think the president is absolutely going to renegotiate USMCA."
Preserving the free trade pact will be critical for Canada and Mexico. More than 75% of Canada's exports go to the U.S. while more than 80% of Mexico's exports go there.
Trump has announced some sector-specific tariffs that do apply for Canada despite the USMCA — known as 232 tariffs — which are having an impact on the Canadian economy. There is a 50% tariff on steel and aluminum imports, for example.
"Canada and the United States have reestablished free trade for the vast majority of our goods," Carney said. "Canada will retain our tariffs on steel, aluminum and autos as we work intensively to resolve the issues there."
Carney previously rescinded Canada's plan to tax U.S. technology firms after Trump said he was suspending trade talks with Canada over those plans, which he called "a direct and blatant attack on our country."
The prime minister disputed any notion that Canada is appeasing Trump, noting that Canada is matching what the U.S. is doing.
"The president and I had a long conversation," Carney said. "There is a review of the free trade agreement in the spring. We're starting our preparations."
Lana Payne, president of Unifor, Canada's largest private sector union, characterized Carney's announcement as Canada backing down, and said the country shouldn't back down unless the U.S. drops all punitive tariffs.
"Trump's attacks on auto, steel, aluminum, and forestry sectors are hurting Canadian workers in real time," she posted on social media. "Walking back counter-tariffs isn't an olive branch. It only enables more U.S. aggression."
Opposition Conservative leader Pierre Poilievre called it a capitulation by Carney. Poilievre said he would have gone to the U.S. president and asked him respectfully to remove all the tariffs.
"Any small tariff on Canada, any amount, by the United States has an outsized effect because more than 20% of our economy is exports to the U.S.," he said.
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